U.S. Pat. Nos. 7,130,789 and 7,184,984 disclose a system for facilitating “multiple-hop” trades between two trading agents in a network of credit relationships, where the two agents initiating the trade do not have a direct credit relationship between them. The multi-hop trades, which are realized through the use of credit relationships with intermediate “credit-bridging” agents, are restricted according to credit limits associated with the intermediate credit relationships. For determining the actual flow of credit to complete a multi-hop trade, a central computer uses a minimum cost flow algorithm, where the cost to be minimized is a function of the actual cost to execute the trade and other factors, such as projected settlement costs, flow balancing heuristics, and a randomizing component. Ahuja, R. K., Magnanti, T. L., and Orlin, J. B., Network Flows; Theory, Algorithms, and Applications (Printice-Hall, Inc. 1993) U.S.A., at Chapter 9, contains examples and descriptions of such minimum cost flow algorithms.
There are significant disadvantages associated with allowing a central computer system to determine credit flows for multiple back-to-back trades according to a minimum cost flow algorithm. One disadvantage is that minimum cost flow algorithms rely too much cost and not enough on other significant business considerations, such as maintaining important, long-standing and mutually beneficial business relationships with certain trading counterparties. Trading entities often prefer to use these business relationships and deal with certain counterparties, despite the fact that doing so may require paying slightly higher or even significantly higher fees. Additionally, for business reasons having nothing to do with cost, trading entities frequently need or want to temporarily or permanently avoid using certain counterparties. It has been found that conventional trading systems that rely exclusively on minimum cost flow algorithms to determine the flow of credit, which in turn determines which counterparties will be involved in a proposed deal, do not give trading entities the control they need in order to properly manage these concerns.
Accordingly, there is considerable need in the electronic trading business for a system that permits the trading entities to determine the flow of credit in a credit relationship network (and therefore, the flow of assets) based on the counterparty preferences provided by the credit entities that are making the trades. It would be even more desirable for this system to be capable of successively falling back to less preferred counterparty preferences when the most preferred counterparties cannot accommodate a proposed trade.